Analysts Applaud HP-Compaq Merger

The new HP could give Big Blue fits as it gains strength from consolidation efforts.
Accordingly, many in the analyst community have rallied behind the merger decision.

By Jennifer LeClaire
08/07/02 10:31 AM PT

The HP-Compaq union not only was the largest merger in technology industry history, it
also signaled the end of an era and the beginning of the next chapter in enterprise
computing, according to a new report by the
Yankee Group.

And the HP product lineup has already started to evolve since the deal closed May 7th.
But what does the merger mean for corporate IT departments over the long term?

"For enterprise customers, now is the time to assess the impact the merged company will
have on IT strategies," Yankee Group senior analyst and report author Jamie Gruener said.

The Big Three

For starters, market positions already have shifted in key areas.
IBM dominated the full-service
computing space before the merger, Dell
made its living by focusing on doing a few things well, and several smaller players
competed for scraps.

But the new HP eventually could give Big Blue fits as it gains strength from
consolidation efforts. Accordingly, many in the analyst community have rallied behind the
merger decision.

"In some sense, we now have a Big Three in computing,"
Forrester Research analyst Carl Howe
told the E-Commerce Times.

A Formidable Business

Indeed, HP's new combined server and
storage product lines will give the company a significant boost in terms of the breadth
of products and technologies that it needs to compete, according to the Yankee Group
report.

As a result, the company should perform well against infrastructure suppliers
like IBM and Sun Microsystems, according
to Gruener, as well as against server and storage leaders like Dell and
EMC.

"One of the places where HP has clearly become number one is in storage," Howe said.
"Compaq was already very strong, but you combine that with HP's storage business and
it's pretty formidable."

With that in mind, analysts said enterprises should focus on longer-term server and
storage relationships that have been built up over the last decade.

Ongoing Support

But for all the benefits of the merger, there are also some potential drawbacks for
customers. For example, the merger raises a number of questions about the fate of
product lines, the blending of two very different corporate cultures, and the
long-term vision HP needs to articulate with respect to fitting its products and
technologies into a single, cohesive brand and vision, according to the Yankee Group report.

"The Yankee Group suggests that customers must evaluate the merger based on technology
road maps, support commitment of products that will be phased out, and how enterprises
can leverage the new, combined company for IT value," Gruener said.

Howe noted that HP has done a good job so far. "I give HP credit for not slashing and
burning [its phased-out product lines]," he said. "The company is making it as painless
as possible for customers. That's a good story."

Net Result

Assuming that the merged company can overcome the "can we execute" issues, its future
looks bright. But at least a year or two will likely elapse before the market pats HP
executives on the back for a corporate integration job well done.

"The net result of the merger is that there is more choice for HP customers," said
Howe, "and more people are likely to become HP customers because of the sheer breadth
of their offerings."